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Big Banks Face Limited Upside

NEW YORK ( TheStreet) -- We began 2013 with positive fundamentals for the bank stocks in the PHLX KBW Banking Index (^BKX). Among the 24 components, four were rated strong buy including two of the "too big to fail" money center banks Bank of America (BAC - Get Report) and Citigroup (C - Get Report). We showed 14 buy rated names including the other two "too big to fail" banks, JP Morgan (JPM - Get Report) and Wells Fargo (WFC - Get Report). There were only six rated hold.

In my last post covering these banks on May 2, Bull Market Will End Without Big-Bank Leadership the only buy rated name was Citigroup. Even so, there was enough technical momentum to power the banking index to a new multi-year high at $62.92 on May 30.

At the beginning of the year the strong buy rated banks were projected to gain between 12.2% and 14.4% over the next 12 months. At Monday's close the banking index was up more than 20% year to date. Today the projected 12 month gains are 4.5% and lower, which is a sign that profits should be taken.

The daily chart for the banking index ($61.00) shifts to negative given a close below its 21-day simple moving average at $60.37 with risk to the 50-day SMA at $57.78. A reversion to the mean is the 200-day SMA at $52.95. My monthly value level is $60.11 with weekly and semiannual risky levels at $62.26 and $62.66.

Chart Courtesy of Thomson/Reuters

The finance sector is 16.8% overvalued with the banking index up 18.9% leading the S&P 500, which is up 14.4%. The overall market remains under a ValuEngine valuation warning with 69.2% of all stocks overvalued.
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BAC $17.43 -0.29%
C $54.09 -0.22%
FITB $20.67 0.15%
JPM $66.68 -0.73%
WFC $55.10 -0.52%


Chart of I:DJI
DOW 17,719.92 -78.57 -0.44%
S&P 500 2,080.41 -9.70 -0.46%
NASDAQ 5,108.6660 -18.8590 -0.37%

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